Q As we speak, UPS and FedEx are a couple of months into their programs to impose dimensional weight
pricing on packages measuring less than three cubic feet,
which is a large chunk of their mix. Are parcel shippers
changing their packaging strategies, or will they grin, bear
it, and pay up?
A At this time, many shippers have been slow to ana- lyze cost increases attributed to dimensional pricing.
Shippers will find that package optimization carries benefits
such as reduced fuel consumption and vehicle emissions.
Some will enjoy lower transportation costs. For many,
however, there will be significant rate increases. We estimate, on average, a 17-percent rate increase on packages
affected by the new policies.
Q Much has been made of UPS and FedEx’s dominance of the B2B parcel market. But B2C (
business-to-consum-er) shipping has become a larger share of the overall mix.
In B2C, there is strong competition from the U.S. Postal
Service (USPS) and possibly from the likes of Amazon.com,
which may establish a dedicated shipping
network. Given the different dynamics of
B2C, are competitive concerns about the
FedEx-UPS duopoly overstated?
AFirst off, Amazon is decades away from being a significant competitor
to the national private carriers. In fact,
it may never reach that level. USPS is a
formidable competitor in B2C. However,
though USPS plays in B2B, that segment
will continue to be ruled by FedEx and
UPS because their networks and systems
do the best job of serving that market.
Unfortunately for shippers, FedEx and
UPS are focused on revenue and yield
management, which means finding more
ways to extract money from their customers.
Q Do you see regional parcel carriers moving the needle in a significant way? Is there a marketplace need—or
is it viable from a business standpoint—for a national network knitted together by the various regionals?
A The regionals are growing because they offer alterna- tives to FedEx and UPS. Regionals have simple contracts with more flexible terms and volume commitments,
10 to 40 percent rate savings over FedEx and UPS, more
favorable dimensional divisors, and fewer surcharges. That
said, regionals haven’t moved the needle in a significant
way. Shipware estimates they account for less than 4 per-
cent of U.S. parcel volume. Our recent survey on shippers’
use of regional carriers reveals that less than 30 percent of
high-volume shippers use them. Most of those allocate less
than 10 percent of their shipments to the regionals.
A “national regional network” is not going to happen
anytime soon. There are too many problems to work out.
Who owns package custody? How are systems to be unified
for tracking, reporting, and invoicing? What if a carrier
cannot handle heavy freight? Most importantly, how is revenue allocated so it makes sense to all parties?
Instead, what is evolving are strategic partnerships
between a handful of regional carriers in the areas of business development, lead sharing, and shared operations. An
example of the latter is a warehouse-sharing agreement in
Pennsylvania between Pitt-Ohio and [regional parcel carri-er] Eastern Connection.
Q If you were speaking to a roomful of parcel shippers on ways to mitigate the price increases that are in place or
are looming, what advice would you give?
A Shippers must utilize multiple con- current strategies. These include
improving pricing through rate negotiations, optimizing package routes by
mode/carrier, implementing least-cost/
best-way automation, reducing packaging
costs, minimizing returns, zone skipping,
and exploring postal and regional options.
Shippers should work with carriers to
reduce the carrier’s operational costs.
Carriers link their pricing to the costs of
supporting a customer. Shippers should
identify components of their business
that are raising their cost profile and work
with the carrier to reduce its investment
in handling the business.
Another approach is to think regionally. It’s no secret
that many businesses are migrating from globally centralized distribution to multiregional DCs in an effort to
put product closer to the customer and reduce transportation costs and transit times. Companies that do both
effectively enjoy an enormous competitive advantage in the
marketplace.
Also explore the many shipping alternatives out there.
Many shippers sole source to FedEx or UPS for convenience or to maximize revenue-based incentives with the
carriers. They may forget that cost reductions and service
improvements can be achieved by adding more service
providers to the carrier mix.
